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Analysis

Creating open banking to meet expectations

Open banking is not just about enabling free data exchange by using technology, it is also about a change in culture and attitude as part of a holistic strategy.

Rich Feldman and Arvind Swami at Red Hat discuss how by opening up to new providers and third parties, banks can become not just service providers but preferred marketplace platform providers.

The decision making behind creating an open banking platform in a marketplace is not only driven by regulation.

Feldman explains: “Regulation and compliance with PSD2 has prompted thought and application around open banking but the real driver is the banks’ need to evolve and satisfy customers. They must respond to the way customers want to do their banking today – and that is not via a branch. Instead they want to access banking products and services in real time through a single, digital interface.”

And Swami agrees: “The demand for greater digital experiences means that customers now have expectations around the ease of use and timeliness of their banking transactions, being able to access not just core services but also associated products and services.”

Indeed the technology to do this is now proven and has gained widespread acceptance within other verticals – hence the demand from customers.

Swami comments: “To properly do this the bank needs to become very modular with portable services that can be bundled and unbundled as needed – including those built on top of a bank’s heritage systems. It also needs to have open standards that link to other ecosystems – benefiting from others in the ecosystem that help get them to market faster and/or help differentiate the bank’s approach to service provision and experience.”

To fully benefit, however, banks now need to embrace the open source community nature of open banking and see it as an opportunity rather than a threat. This is starting to happen; Feldman thinks around 70% of banks have already engaged with API ecosystems or are in the process of doing so.

“Banks know that applying this technology can help them drive their capabilities and meet the way that people want to do banking now. APIs provide the ability to evolve and bring solutions to market quickly.”

Some banks, says Feldman, have recognised that to get the best from open banking a partnership with a fintech works well. “Banks have a well-documented grapple with legacy technology and systems and the funding to innovate is simply not there in the vast majority of cases. Fintechs meanwhile can provide the wizardry to fully enable an open banking ecosystem – this is their core proposition as opposed to that of the banks – which is managing assets.”

The danger of not doing this, says Swami is that banks then are relegated to being an increasingly commoditised service provider for others. If they lose the distribution they lose the access to a wider customer base, one that comes along with a broad range of products and services on their own platform. They risk losing the loyalty of their existing customers who want and expect more from their bank.

But he warns that this will take time to change and that the cultural acceptance of the desirability and need to reach out to develop an ecosystem is still in its nascent stages.

Open banking is, says Feldman, a fundamental shift in digital strategy. By looking at the possibilities in a community with a strategic and holistic view, identifying where you can best differentiate, and partnering with those that can make things happen faster – banks can build a meaningful ecosystem to meet customer needs and ultimately promote loyalty.

By Alison Ebbage

This article is also featured in the November 2018 issue of the Banking Technology magazine. Click here to read the digital edition, it is free!

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